Lithium Americas: Initiating Coverage With $20 Fair Value Estimate

We are initiating coverage of the newly formed Lithium Americas LAC with a $20 (CAD 27) per share fair value estimate. The company was created in the separation of the former Lithium Americas that divided the company’s North American business, which retains the Lithium Americas name, and the Argentina business, which is now named Lithium Argentina.

We rate Lithium Americas with a no-moat rating. Our base case is that the Thacker Pass will sit on the bottom half of the global lithium cost curve on an all-in-sustaining cost basis, our preferred cost measurement. However, we see too high of a risk associated with the project—that is currently under construction—which precludes a narrow or wide moat rating. Our capital allocation rating is standard, and our Uncertainty Rating is Very High.

At current prices, we view Lithium Americas shares as materially undervalued, with shares trading at a little less than 50% of our fair value estimate. We see two drivers behind our thesis. First, we forecast lithium prices will rebound and begin to rise by 2024 as strong demand growth outpaces increased supply, boosting sentiment for lithium producers that are developing and constructing projects.

Second, we think the market is undervaluing the long-term volume growth potential for the Thacker Pass project. Thacker Pass is under construction at one of the largest known lithium resources globally, the McDermitt Caldera in the U.S. state of Nevada. Management has guided to an annual production capacity of 80,000 metric tons from the first two phases of the project. However, given the large resource size, we forecast Thacker Pass will grow long-term capacity to 240,000 metric tons, or 3 times management’s initial plan.